InsurTech Ohio Spotlight with Andrew Robinson

Andrew Robinson is CEO and Chairperson at Skyward Specialty Insurance, a rapidly growing and innovative specialty insurance company, delivering commercial P&C products and solutions on a non-admitted and admitted basis. Andrew was interviewed by Michael Fiedel, Co-Founder at InsurTech Ohio and Co-Founder at PolicyFly, Inc.

Andrew, what’s non-economic social inflation, and what are some clear examples?

“I don't think there's a clear definition. To me, it’s the inflation related to cases of bodily injury lawsuits or class action lawsuits where there's no precedent for the value of the demand, and for which there's no foundation in which such large damages can be assigned. You see it most intensively through lawsuits that are taken to trial. The second-order effect is the impact on similar situations that never find their way to trial. It’s far more expensive to settle claims even when not taken through trial for fear of the damages a jury may assign in a trial. That anesthetizes society to what’s fair and reasonable damage given circumstances.

But, we have a long history of scenarios where you can look at damages and settlements in the context of ordinary inflation. We're in a period where the social inflation I am describing is diverging considerably from historical damages and settlements. There are plenty of specific examples available – a lot of information published on nuclear decisions, which historically were defined as $10 million judgments. The medians of those are going up at levels that are unexplainable if you don't understand the drivers behind them. Too frequently we see where somebody's been injured, and the result is astonishingly something like an $80 million reward. How could that possibly be, when there seems to be no justification or reason behind that high of a verdict. That's the kind of thing that’s becoming a somewhat regular occurrence these days.”

Why is it happening in insurance? And why is it important to discuss?

“It's important to discuss because this relates to the fundamentals of product availability and product affordability. The cries and screams of what appears to be concern from regulators, consumers and others is that the industry is gouging people on costs. From the commercial insurance lens, where our businesses focus, we recognize commercial insurance is the lubricant that makes the world's Gross Domestic Product (GDP) go and enables companies to transfer risk to insurance companies and into the capital markets.

The transfer of risk is critical for companies to function, yet the problem comes when products become less affordable, less accessible and the coverage less meaningful. That's the problem we're trying to solve. There are several reasons why it’s happening. One is socioeconomics. In the U.S. as well as in other western countries, the wealth gap seems to have created a growing mistrust of big business.

Pair that with, in my view, bad influences: litigation finance is taking the soft underbelly of this socioeconomic backdrop and driving an ugly wedge through it. Litigation financiers are operating like any other asset manager, except they're deploying their funds toward situations that can generate large returns by funding specific litigation situations with the aim to drive a massive multiple of that investment. And guess what? These financiers have realized that taking a situation all the way through to trial is their advantage.

I also believe that oftentimes younger, more liberal juries regardless of what kind of jurisdiction they're in, create a difficult combination of what’s an appropriate award for damages. Additionally, these large results start to influence costs to resolve claims that don’t go to trial, which have also become costly. Insurance companies have to start factoring this in both their product construct and pricing, which then circles back to the starting point: product availability and the value of the product. As the value of the product is reduced to address these rising losses, the cost of the products goes up and leads to a problem for commerce.”

How are we as an industry dealing with this situation?

“Not very well. It’s fair to say that the litigation finance industry (the plaintiff bar) is more organized than the insurance industry. The industry itself must become far more organized in being unified in response to this. We must work with business groups who understand how this is negatively impacting the ability to access good insurance products at reasonable costs. And if it doesn’t occur through that set of events, it'll happen at the point it did with the medical malpractice crisis in 2000, when doctors couldn’t afford med-mal protection. That created an issue in terms of accessibility of care. If something like that happens, the states must reform the tort laws because there's no other choice.

Don’t get me wrong, some good things are going on. American Property Casualty Insurance Association (APCIA) is a big voice for the industry, and it’s pairing with various groups representing businesses to try to get change in laws around litigation financing. Something is sitting in Congress today that will formalize the disclosure of litigation financing. But, the truth is that today there are very few states which have managed to pass litigation finance disclosure laws and so, the impact of the laws is fairly negligible. When that happens, tort reform will begin to occur.”

What needs to happen to combat social inflation?

“What we need is tort reform. The problem is that every state operates independently of the other, so there must be something at the congressional level, like the disclosure requirements I mentioned. We need to start to put caps on things, and if there's a reason for litigation financing, put the boundaries around that in such a way that it's fair and appropriate given the circumstances. Continued pressure at the state level is important, and there are structural things that have to occur. The reality is the only way the industry can protect itself is by continuing to price the cost of risk and exposure as appropriately as it can so that the pressure is directly felt by the buyers of insurance. This will create action for those who see it becoming unaffordable.

At a tactical level, we must be thinking about how to combat this tomorrow. We're arming ourselves with tools and talking about how to combat abuses. Hopefully it’s as good, if not better, than what's happening amongst the plaintiff bar and the litigation finance community. For example, we received a first notice of loss with a Stowers demand, which is a time-limit demand to pay our full limits with a hundred-page legal document supporting the demand that was generated via AI by this plaintiff attorney. We have to be able to combat that in a similarly sophisticated way. In the meantime, we need to develop tactics to combat these assaults, many of which are mass generated, so that plaintiff law firms and the litigation financiers do not have a true advantage over the insurance companies and their policyholders.”